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Understanding Employee Benefits: What to Look for When Job Hunting

Posted on by kbhennes

When searching for a job, it’s easy to get caught up in the salary amount and forget about employee benefits. The prevalence of benefits in job offers has increased over time and now makes up around 30% of your overall compensation package. While there are many different examples of employee benefits, today, we will discuss a few common examples and some things to keep in mind:

Monetary Benefits
Monetary benefits provide the employee with direct financial compensation. These items will have a direct impact on an employee’s take-home pay. Examples include:

  • Salary or Hourly Wage
    A salary is a fixed amount that employees earn annually regardless of the number of hours worked. Salaried workers are typically paid biweekly or monthly and receive the same amount each paycheck. An hourly wage means that employees are paid per hour worked and are eligible to receive overtime pay for working more than 40 hours a week. It is important to note that overtime hours are not always guaranteed and usually depend on the needs of the company.
  • Signing Bonus
    A one-time payment offered to incentivize new hires to join the company.
  • Yearly Increases/Bonuses
    Annual raises and bonuses are awarded once a year to recognize performance, long-term loyalty to the company, and cost of living adjustments. Yearly increases are typically seen every year you are with the company, whereas bonuses are not guaranteed and typically based on your performance during that year.
  • Profit Sharing
    A company shares a portion of its profits with its employees. Financial compensation is based upon the performance of the company. This approach motivates employees to work harder since their earnings are directly tied to the company’s success.
  • Stock Options
    Stock options give an employee the right to buy company shares at a predetermined price. Employees will benefit as the company’s stock value increases over time.

Near-Monetary Benefits
Near- Monetary benefits are indirect financial perks. While they do not show up as cash on your paycheck, they can help you save money or remove items from your monthly budget. Here are some examples:

  • Health Insurance
    Employers typically offer group health insurance plans that are more affordable than an individual plan. Health insurance helps to cover out-of-pocket medical expenses such as doctors’ visits, hospital stays, procedures, and prescriptions. By paying a monthly premium, employees gain access to a range of healthcare services at a lower cost, often with a portion of the premium covered by the employer.
  •  Retirement Contributions
    Many employers offer retirement savings plans such as a 401(k) and match a portion of the employee’s contributions. This is essentially free money helping you to build your retirement savings faster. These contributions are typically deducted from your paycheck. Companies use a vesting schedule to determine when an employee gains full ownership of employer contributions, typically between three to six years. If you leave the company before the end of vesting, you will only be entitled to a portion of the employer’s contributions but will still receive all the contributions you, as the employee, have contributed. Below is an example of a vesting schedule.

  • Paid Time Off
    Paid time off allows employees to take time away from work while still receiving their regular pay. Some companies separate the days into vacation and sick days while others combine them into a single PTO bank. Employers may offer PTO as a set number of days, accrued over time, or unlimited. If your company uses unlimited PTO, I encourage you to ask questions such as the average number of days taken per year and the approval process for time off requests.
  • Tuition Reimbursement
    Employers may offer tuition reimbursement to encourage employees to continue their education. The company will typically cover part of or all the costs for job related courses or degree programs. There may be specific requirements such as maintaining a certain GPA or staying with the company for a set period after completing their education.
    Other examples include complimentary childcare, a company car, travel awards, relocation assistance, training and education, and optical or dental insurance.

Non-Monetary Benefits
Non-monetary benefits are perks that enhance an employee’s well-being, job satisfaction, and work-life balance without directly providing monetary compensation. Some examples include:

  • Flexible Work Arrangements
    Employers may offer flexible work arrangements such as remote work and flexible hours. While these do not cost the company anything, they can help to improve the employees’ stress levels and work-life balance. Some companies have even begun to offer working 4/10s, four days a week with ten hours each day.
  •  Job Title
    A job title that accurately reflects all your responsibilities can be valuable. Having a prestigious title can help build your professional reputation and make it easier to qualify for job opportunities in the future.
  • Home Equipment Usage
    Home equipment usage refers to an employer providing remote workers with essential equipment such as laptops or monitors. If you plan to work hybrid, it can be useful to have a separate laptop in the office and at home to minimize the load you are carrying into work each day.

A competitive salary is an important part of your offer, but a strong benefits package can improve your overall happiness and stability at a job. Before accepting a job offer, take the time to review what’s included and compare it to your priorities and long-term goals. Powercat Financial counselors would be more than happy to review an offer alongside you if you feel overwhelmed. Lastly, don’t forget that many benefits, such as PTO, flexible scheduling, and retirement contributions, have the potential to be negotiable. Advocating for your needs can lead to an offer that truly fits your lifestyle. If you are interested in learning more about this topic, schedule an appointment via Navigate to meet with a Powercat Financial peer counselor.

Avery Williams
Peer Counselor I
Powercat Financial
www.k-state.edu/powercatfinancial

What are employee benefits?

Posted on by Cheryl Rauh

Employee Benefits are any kind of tangible or intangible compensation given to employees apart from base wages or base salaries. Two of the foundational benefits are health and wellness benefits and retirement benefits.

What are possible health and wellness benefits?

Health and wellness benefits include healthcare insurance, dental insurance, vision insurance, life insurance, disability insurance, prescription drug coverage, employee assistance programs, and wellness programs.

What definitions do you need to understand my benefits?

Premium: The monthly cost of an insurance plan is called its premium. This cost is often partially paid by the employer with the remaining cost falling on you, the employee.

Deductible: When an insurance claim/incident (typically medical) occurs, the deductible is the amount you have to pay out-of-pocket first before your insurance starts paying your claims.

Copay: A copayment is a fixed cost attached to specific services for your healthcare. When you pay a co-pay for your service, the remaining cost will either be covered by your health insurance or split between you and the healthcare based on the co-insurance amount. An example of a copay would be a $40 flat charge for every general care appointment from your Primary Care Physician.

Coinsurance: Co-Insurance is a percentage attached to medical costs that identifies how much you pay of the medical expenses after your deductible has been paid.

Example: You have a 20/80 coinsurance indicating 20% is your cost. If you have $100 in expenses and your deductible has been paid, you will owe $20 (20% of $100). It is important to note that some plans may list the same benefit as 80/20 (reversing the numbers), so it is always important to identify which portion you are responsible for.

Out-of-Pocket Maximum: Your out-of-pocket maximum on your health insurance policy is the maximum amount of money that you will have to pay in total for the year, excluding premiums and balance bill charges.

Example: Imagine you have a $1,000 deductible, 20/80 co-insurance, an out-of-pocket maximum of $10,000 and a large medical expense of $50,000. In this example you would pay $1,000 deductible first [50,000-1,000=49,000], then 20% of the remaining costs up to 10,000 maximum [49,000*.2=9,800], but because you already paid $1,000 of your $10,000 maximum you only have to pay [10,000-1,000=9,000] 9,000 of the remaining $9,800 expenses.

Network: Your healthcare network includes all the facilities, providers, and suppliers your health insurer has contracted with to provide health care. Most plan will still cover out-of-network health care, but they will cover a smaller portion, so your expenses will be much higher.

Primary Care Physician: Your primary care physician will be your go-to for general care and your source for referrals to additional medical care. When reviewing your benefits, your primary care physical will often be referred to as your PCP. 

What are possible retirement employee benefits?

There are two basic categories of retirement plans:

  1. Defined Benefit Plans: A defined benefit provides a specified retirement income based on years of service and related salary.
  2. Defined Contribution Plans: A defined contribution plan allows you, the employee, to contribute up to a maximum amount of money each month that is saved and invested to be accessible funds for you at retirement.

Various types of retirement plans exist based on the type of employer you have, but all the defined contribution plans work similarly. The defined contribution plan options will either be a 401(k), 403(b), or a 457. A pension plan is a defined benefit retirement plan.

  • 401(K) Retirement Plan: Define contribution plan used by for-profit organizations
  • 403(b) Retirement Plan: Defined contribution plan used by tax-exempt organization (e.g. public schools, churches)
  • 457 Retirement Plan: Defined contribution plan used by nonprofit and government organizations
  • Pension Retirement Plan: Defined benefit plan. Social Security is a defined as a pension plan.

What is a % contribution match on my defined contribution retirement plan?

An employer-sponsored match on your defined contribution (e.g. 401(k)) retirement plan means that your employer will equally contribute the same amount of money that you contribute, up to a certain percentage of your income, often between 3-5%.

For example, let’s say Tristan makes $40,000 a year and Tristan’s employer provides a 4% match. If Tristan chooses to save 8% of their income, [$40,000*8% = $3,200] then their employer will also contribute up to 4% to Tristan’s retirement plan. Since Tristan chose to saved 8% then the employer will contribute the full match of 4% [$40,000*4% = $1,600].

How can Powercat Financial help you with employer benefits?

Powercat Financial is a free, confidential peer financial counseling service for K-State students. At Powercat Financial, we work together with students to explore and discuss topics like credit, student loan repayment, budgeting, and job offerings. Employee benefits are a major factor to any job offer as well as your financial well-being and as such it is important to understand what you’re being offered and how to benefit from these employer-sponsored benefits. I’d encourage K-State students looking to review a job offer and benefit package to schedule a free appointment to have one of our counselors guide you through your employee benefits!

Chet Redstone
Peer Counselor I
Powercat Financial
www.k-state.edu/powercatfinancial

Start Saving Now!

Posted on by ekoochel

Planning for a future 40 years from today may seem impossible, crazy, and downright unnecessary… especially when it’s hard enough to see past that dreadful exam you haven’t started studying for. While retirement is in the far off future, saving for retirement early will help you maintain your standard of living as you enter your 70s and help you avoid turning back to your college ramen noodle diet.

Why Save Now?

Ideally, you should start saving in your 20s, once you graduate and begin earning paychecks. By starting a retirement fund today, your investment will have more time to grow and compound, meaning that each year’s gains will generate their own gains next year. The following graph shows the impact of investing early.

This chart assumes a 7% annual return. Investing $5,000 annually between the ages of 25 and 65 will result in a total of $1,142,811 for retirement. Your retirement fund will have $602,070 more than if you would have waited to make the exact same investment…10 years later. For further comparison, if you only invested between the ages of 25-35 (10 years), you would have earned $61,329 more than investing between the ages of 35-65 (30 years), all else equal.

Image result for growth of savings assets jp morgan

 

 

 

 

That sounds great! So how do I get started?

How you plan for retirement when you’re younger will differ from when you’re older. When you’re younger, you should save at least 7% of your salary for retirement. With the average salary of those between the ages of 20-30, $32,000, your average annual retirement savings will be approximately $2,240. This equates to putting away $43 per week, or giving up a few Starbucks coffees or Uber rides.

Many employers will offer a 401(k) retirement savings plan. If your employer offers to match your 401(k) contribution, take advantage of this benefit by contributing at least the amount that they’ll match. By doing so, you will double your retirement contributions at no additional cost to you.

If your employer does not offer a 401(k) plan, you might consider an IRA (Individual Retirement Account) as a means of investing for retirement due to their tax savings. You can open an IRA through your bank, or other entities such as Wells Fargo or Edward Jones. When choosing what to invest in, you will want to invest more aggressively when you are younger. This means you will want to invest in high-risk/high-yield options, such as stocks. Even if your investments perform poorly in the short run, you will have time to recover financially prior to retirement. Investing is no easy task and many choose to hire a financial planner. To ensure your planner is top-notch, you can utilize http://www.plannersearch.org/ to search for planners who are certified.

I Can Rely on Social Security, Can’t I?

In order to be well prepared for retirement, it is a good rule of thumb to save the equivalent of 85% of your end-of-career salary for each year of retirement. For example, let’s say you make $80,000 per year at the end of your career. You will therefore need approximately $68,000 per year in retirement, or a total of $1,360,000 for all 20 years. The average Social Security monthly retirement payment is only $1,334.21. This comes out to just $16,010.52 per year, leaving you $51,989.48 short each year.

Budgeting Your Life with Your Finances

Saving for retirement shouldn’t mean compromising your dreams and goals in your 20s. By creating and utilizing a budget, you can balance your financial responsibilities (saving for retirement, student loan payments, rent, etc.) with the things that matter to you (buying that engagement ring, backpacking across Europe, finally buying food other than ramen, etc.). To kick start your budget, you can utilize the Spending Plan Worksheet that can be found at www.k-state.edu/pfc/budgeting. For more hands on help with saving for retirement or budgeting, feel free to set up an appointment with a peer financial counselor by going to www.k-state.edu/pfc/services.  By making the choice to start saving for retirement today, you will greatly increase your wealth, opportunities, and lifestyle in the future.

Sources:

www.saltmoney.org

http://www.cheatsheet.com/money-career/3-big-benefits-of-saving-early-for-retirement.html/?a=viewall

www.jpmorgan.com

Jillian Taylor
Peer Counselor III
Powercat Financial Counseling

IRAs: What They Are and What They Can Do For You

Posted on by christyne

What is an IRA?

An IRA is an individual retirement account in which you can contribute up to $5,500 per year (2014), with an additional $1000 when you are 50 years and older, to save for your retirement. Most banks, mutual fund companies, and brokerage firms offer IRAs.  You must have earned income in order to contribute, and you can start withdrawing at age 59½.  There are two types of IRAs:

Traditional IRA:

  • Money goes in before taxes
  • Taxed on withdrawals
  • Must start withdrawing specified amounts at age 70½
  • 10% early withdrawal fee in most cases

Roth IRA:

  • Money goes in after taxes
  • Money isn’t taxed again, not even on the interest accrued or at withdrawal – allows your money to grow tax free
  • Not required to withdraw money at a specific age
  • Can withdraw early with no penalty for a first-time home purchase (up to $10,000) or in the event you become disabled

Some logic to consider about these is that when you first graduate and start out at a new job, generally you will be in a lower tax bracket than you will be as you reach retirement.  This being the case, it may be better to go with a Roth IRA so that you are taxed at a lower rate than you would be if you paid taxes upon withdrawal as with a traditional IRA.  On the other hand, if you don’t open an IRA until you have been working for several years and you are in a higher tax bracket, you may want a traditional IRA instead, since you will most likely drop to a lower tax bracket by the time you withdraw funds—this would happen if you were no longer earning income.  Try to choose the one that is the most taxably efficient for you depending on your situation and your plans.  Historically, tax rates tend to increase over time; however, there is always a possibility that the rates will be lower when you withdraw the funds, so this is another factor to consider as well.

Why Save Now?

You might be thinking, “I have student loans I need to pay off for the next 10 years, I can’t afford to save now,” or, “I’m only in my early 20’s, I have plenty of time to save for retirement.”  While these may be true, the reality is that life costs money.  Saving early, even if it is a minimal amount, will pay off.  If you are thinking that you want to retire at age 65 to 67, you have to consider how much you will realistically need to live on for 20-30 years after you retire.  You should also consider that you may not be the only one you need to provide for during that time: you may have a family to support as well.  Time is of the essence when it comes to saving for retirement.  If you start early, you will save yourself much stress later on.  If your employer offers you a retirement plan, take full advantage of it.  That alone, however, may not be enough to support you in retirement; this is why it is important to consider other avenues of saving such as IRAs, a savings account through your bank, or even investment portfolios.

Even if you have student loans or any other debt you are paying—such as a mortgage or car loan—it is still important to be saving.  Think of it as paying yourself.  You want to “pay yourself first”—you are investing in your future!  A good rule of thumb for saving is to set aside 10% of each paycheck.  Depending on your situation, you may want to save less than that in order to pay your bills, but if you are able to save more than that, you should.  There may come a time in your life when you aren’t able to save much at all for whatever reason, and you want to be able to have a cushion for those times.

The following is an example from PracticalMoneySkills.com of how postponing savings can hurt you:

The longer you delay saving, the harder it is to catch up…if you saved $100 a month at 8% interest, after 20 years your account would be worth $57,266. But wait only two years to begin saving and that balance would shrink to only $46,865 – over $10,000 less. A five-year delay would reduce the balance to only $33,978.

The Magic that is Compound Interest

Compound interest is a very powerful tool.  To illustrate, let’s say you are able to find a savings account that offered 8% interest on your money—this, unfortunately, is not a realistic bank account rate currently; however, if you shop around in the investment arena, you should be able to find higher rates of return.  If you started putting $100 per month into the account, you would have $450,000 by age 65.  If you put in $200 per month, you would have $900,000 in the same amount of time; and if you increased the amount to $300, you would have $1,000,000!  How cool is that?  This is how IRAs work.

This site also has many other calculators that you might find useful.

To learn more about compound interest, visit: http://www.practicalmoneyskills.com/personalfinance/experts/practicalmoneymatters/columns/compounding_110708.php

Saving Tips

If it is hard for you to save, whether it is something you easily forget, or it is just difficult for you to physically transfer money into savings, one simple solution is to have a portion of your paycheck go directly into savings.  When setting up a direct deposit through your job, you can specify how much you want to put into a separate savings account, whether this be a percentage or a dollar amount.  This way you won’t “miss” the money; you will be accumulating funds without even noticing that the money isn’t in your checking account.  You can also set up an automatic transfers from your checking to your saving account by talking with your bank.

Resources

Rachel Vogler
Peer Counselor II
Powercat Financial Counseling
www.k-state.edu/pfc